Monday, August 26, 2013

Be Careful,The Government Will Always Rig the Game

By Simon Black

Spoleto, Italy

The Villa where I've been staying for the last week is one of my favorite spots in the world.

When I first found it nearly two years ago, I couldn't believe it. The home is exquisite-- it's a 14-bedroom chateau situated on 25 acres of wine grapes and olive trees, and it's been in the same family for centuries.

Built hundreds of years ago by one of the most famous architects in Italian history, the villa is full of interesting surprises. There's a tunnel system, cellars and catacombs, and fresco paintings all over the walls and ceilings.

The art work they have just laying around collecting dust in the corners were commissioned hundreds of years ago during the late Renaissance. It must be worth a fortune, and they haven't even bothered to hang most of it up on the walls.

And the hospitality here is classic Italian. Three generations (mother, daughter, grandmother) are all in the kitchen whipping up copious amounts of homemade pasta and tiramisu as part of a never-ending parade of food and wine.

It's such a shame that a place as special as this has fallen on such difficult times financially.

I had a long chat with the owner today, Anna, who poured her heart out about how difficult it is to run a business in Italy these days.

It's bad enough that they've jacked tax rates to the moon. And governments have forced banks to become unofficial tax collectors... limiting the amount of money that can be withdrawn and scrutinizing international wire transfers.

Then the government went and, practically overnight, made her agricultural operations unprofitable.

As a developed country, labor costs in Italy are very high. And this is problematic when you have certain labor-intensive crops to harvest.

But in years past, they've always beat this problem by conducting their harvests as a joint venture, splitting the profits with the field workers 50/50. I found this to be astoundingly expensive, but as she told me, it was an OK deal for her.

Then suddenly, the government changed the rules and required her to pay a day rate to the laborers. And naturally, they set the rate so high, it's now become impossible for her to harvest at a profit.

Even though the workers would gladly and willingly take the same deal as last year, she is now in a position where she has to choose between violating the law, losing money, or just letting the crops deteriorate.

The home is another story altogether.

Due to its historical nature, the villa was awarded a special status as a sort of national monument years ago. This meant that she was able to make upgrades, improvements, and maintenance investments on a tax-free basis.

A few months ago, though, the government revoked this status, retroactively. And they've now presented her with a big tax bill that she was never expecting before.

It turns out that all the promises that the government made to her weren't worth the paper that they were printed on. And just talking about it brings her to tears.

We spent the afternoon discussing options for her to safely and legitimately move her savings and business out of the country-- like setting up an offshore management company to book and hold the bulk of the income overseas.

But it's an important reminder: this is a rigged game. Desperate governments will always unilaterally change the rules in their favor, in their sole discretion, at any time.

They will abrogate any contract, violate any law, renege on any promise, and abandon any obligation, in order to keep the party going just a little while longer.

Given this unblemished track record, it seems crazy to think about how much responsibility we place in these bankrupt governments-- our retirement, the purchasing power of our currency, the education of our children, etc.

It certainly makes sense for a rational, thinking person to distance himself from this system and reduce dependency on the government.

This includes supplementing the education of one's children through at-home study, having positions in real assets instead of just paper currency, responsibly building a strong retirement nest egg, etc.

1 comment:

The article at the link above is about a factory owner who gave his 40 Italian employees a few weeks off during the summer, and moved his entire manufacturing business to Poland to escape the taxes, regulations and Union bullshit in Italy. He knew that if he told the workers beforehand they would vandalize and try to stop him, and the last day of the move they came and rioted.